Two weeks ago I watched a truck deliver four pianos to a music store. Did I just witness the act of logistics? Hardly.
Delivering raw materials to the piano manufacturer….moving a piano to another part of the factory to be painted….transporting the piano to be tested…..putting seven pianos on a truck headed for a distribution center 700 miles away.….eight pianos are put on a ship and sent to London …..four pianos are delivered to a music store two blocks from me. That’s logistics.
For a typical company, this function can cost approximately 15% of total revenue. Since logistics covers everything from bringing materials into a firm, moving it through the firm, then shipping the final product to a customer, it’s hard to exactly quantify all the costs involved. One thing is sure. Transportation is not getting any cheaper. Globalization is making transportation necessary; and goods have much longer way to go.
In addition to fuel costs, you have environmental protection, safety, employee costs, storage costs, tariffs & fees and shipping charges. There’s also the time it takes to plan the most effective route for merchandise to take. This leads us to a factor we’ll discuss later on. Third party logistics or 3PL. Also known as, outsourcing.
An interesting note is poor logistics causes about 50% of all customer service complaints. That would make sense. Late deliveries and receipt of damaged goods are experiences I have known personally.
What are some of the things we have logistics to be thankful for:
• Order fulfillment, customer service and perceived value. If you order 10,000 Celine Dion holiday CD’s and they arrive before Christmas, your supplier is going to look really good in your eyes.
• All organizations require some form of materials movement in order to function.
• It’s another division of your company that regularly makes contact with your customers and suppliers. And it’s usually in person….not via email.
• Can be a major factor in determining where to place warehouses and facilities.
• Advertising. That’s right. Are your company name, phone number and message on your truck? Why not? Give pedestrians and drivers something to read.
Logistics isn't exclusively about moving materials. It includes receiving goods, making sure they’re all accounted for and storing them in the right spot for easy access.
Companies are adapting several strategies in how they implement their logistics function. This is a supply chain department that is resource intensive as well as customer facing. Here are two approaches whose names should sound familiar. Lean & Agile:
Lean : Do more with a lot less. Early work with lean strategy started with Toyota. Toyota discovered in each step of car production there is waste. So, what do you do? Analyze the process and get rid of the waste.
The standard approach would be a complete review of the logistics process. Any step that adds no value is eliminated. We look to simplify a process….remove red tape…move a facility closer to a major customer if it saves time….if drivers are waiting too long between deliveries, change the schedule. As long as decent customer service levels are preserved, redundancies and inefficiencies should be cut.
If you have a mass production facility and are not subject to variable demands, this strategy might work best.
Agile : Customer comes first. An agile strategy aims to be responsive to a customer’s needs. If a customer requires his goods to be delivered on Monday in a blue box and Wednesday in a red box, it’s done.
Clients generate revenue; and it costs more to find a new customer than service an existing one. An agile strategy is flexible and responsive. If a customer purchases five times his usual order and wants it two weeks earlier, agile logistics adapts to the demand.
These two methods are not mutually exclusive. Both have their merits. Lean works best when demand is stable or predicable. Agile works when your product line is varied, requires customization and demand changes throughout the year.
Logistics is a big job. Outsource it. This trend seems more apparent with larger companies. Some firms have outsourced part or even all of this function. Focus on your core competency. If you are looking to enter a new territory or have customers far from your distribution centers, 3PL is your answer.
3PL provider contracts usually last from 2-5 years. The exit fees can be high if you opt for early termination
If you decide to manage and design your own transportation, warehouse and delivery network there’s great logistics software to help you. Some of which will be advertised on this page.
What about international logistics? There’s enough content on that to start a convoy. We will cover international topics elsewhere.